MORESCO Corporation
MORESCO Group delivers sustainable one-of-a-kind products

The 66th 2Q Financial Report(From March 1, 2023 to August 31, 2023)

Tokyo Stock Exchange Prime Market 5018 (Petroleum and Coal Products)
October 16, 2023

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Business Environment- Raw material prices and Exchange rates$/b

Dubai crude oil price¥/$Exchange rate

120

150

110

138.4 140

100

130

90

77.980
70120
110
100

60
5090

4080

3070

20-2Q

21-2Q

22-2Q

23-2Q
Domestic naphtha price

1,000 yen/kL80

6860
40
20
20-2Q

21-2Q

22-2Q23-2Q
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Business Environment- Volume of automobile production
Changes in automobile production volume in regions of our sites
10,000 units(% compared toprevious year)

2,761 (+10.3%)

2,679

2,490

2,503

1,904

452

(+7.6%)

551(+9.8%)

1,324 ( +9.3%)434

2Q 2019

2Q 2020
Japan

2Q 2021
China

United States

2Q 2022( +17.6%)

2Q 2023

Southeast/South Asia

Source: Prepared by MORESCO based on data released by MarkLines Co., Ltd.
Note 1: Data is aggregated based on MORESCO’s fiscal year (Japan: March to August, overseas: January to June).
Note 2: Data for Southeast/South Asia includes only Thailand, Indonesia, and India, where we have operating sites.

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Business Environment- Current status of automobile production and lubricant business in China➢ Sluggish sales of lubricants due to a decline in the operating rate of Japanese autoparts manufacturers➢ Accelerating product evaluation for new energy vehicles and focusing on
development of new products
Volume of automobile production in China
1,000 units

Japanese automobiles
New energy vehicles7,522

Other

7,368

6,477

7,026
6,210

5,631

1,975

2,200

2,037 (29%)

(19%)

1,231

1,298(18%)

1,183

987

1,261

983

905

920

2022/1Q

2022/2Q

2022/3Q

2022/4Q

2023/1Q

2023/2Q

1,565

Source: Prepared by MORESCO based on data released by MarkLines Co., Ltd.
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(13%)

4

Consolidated Income Statement
FY22 first half

FY23 first half

Year-on-yearchangeNet sales

14,523

15,386+5.9%

Gross profit

4,039

4,197

+3.9%

3,744

3,669-2.0%

295

528+178.8%550405-26.4%

Ordinary profit

846

933

+10.4%

Profit before tax

846933+10.3%

Profit*504

569+13.0%(Million yen)

SG&A
Operating profit
Non-operatingprofit (loss)* Profit attributable to owners of parent, the same hereafter

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Net sales by Business Segment

FY22 first half

FY23 first half

Year-on-yearchangeFunctional Fluids

7,027

7,736

+10.1%Hot Melt Adhesive

3,754

4,194

+11.7%

Synthetic Lubricants

991

607

-38.7%

1,855

1,940

+4.6%

896910+1.6%

14,523

15,386+5.9%(Million yen)

Liquid Paraffin &Sulfonates

OtherTotal net sales

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Functional Fluids[Net sales] Up 10.1% year on year (¥7,736 million)[Sales volume] Down 2.1% year on year
Million yen➢ JapanSales for automotive applications recovered,but sales for non-automotive applications
were weak.
1,780

2,386
2,090

1,752

1,639

➢ China
Delay in economic recovery, and decline inproduction and sales of Japanese
automobile manufacturers

1,391880941

529 536
385

Vacuum Hydraulic DC fluids Cutting
oilfluidfluids

22 / 2Q

454

Forgingoil

Other➢ Southeast/South Asia, North America
Sales volume increased due to increased
automobile production.

23 /2Q
7
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Hot Melt Adhesive[Net sales] Up 11.7% year on year (¥4,194 million)[Sales volume] Up 4.0% year on year
Million yen

3,082➢ JapanSales for hygiene applications steadily
increased.

2,668

446

Hygiene applications

523

Adhesive

22 / 2Q

639

588➢ Overseas
Sales expansion for hygiene applications
progressed in India and Indonesia.

Other

23 / 2Q
8
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Liquid Paraffin & Sulfonates[Net sales] Up 4.6% year on year (¥1,940 million)[Sales volume] Down 12.3% year on year
Million yen

1,389

1,421

➢ Liquid Paraffin
Sales volume of products forpolystyrene plasticizers decreased.

357➢ Sulfonates
Demand for metal working applications
decreased.

368
109

Liquid Paraffin

Sulfonates

22 / 2Q

150

Other

23 / 2Q
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Synthetic Lubricants[Net sales] Down 38.7% year on year (¥607 million)[Sales volume] Down 31.6% year on year
Million yen➢ High temperature lubricating oils
Sales decreased due to production
adjustments at customers.

575504392➢ Hard disk surface lubricant
Sales decreased due to a decline in data
center investment.
74
25High temperaturelubricating oils

HD lubricants

22 / 2Q

29
Other

23 /2Q
10
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Consolidated Income Statement
FY22 firsthalf

FY23 firsthalfYear-on-yearchangeNet sales

14,523

15,386+5.9%

Gross profit

4,039

4,197+3.9%

SG&A

3,744

3,669

-2.0%

R&D expenses

635

634-0.2%

Operating profit

295

528

+178.8%Non-operating
profit (loss)

550

405-26.4%

Ordinary profit

846

933

+10.4%

Profit before tax

846

933

+10.3%

Profit*504

569+13.0%(Million yen)

* Profit attributable to owners of parent, the same hereafter
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Factors/breakdown ofincrease or decrease(Factor) Adjustment of selling prices(Factor) Decrease in freightage, etc.

(Factor) Foreign exchange gains -18611Trends in Net sales and Gross profit margin➢ The decline in gross profit margin has slowed down.

Million yen

Net sales

9,000

50.0%

Gross profit margin

7,957 7,854
7,050

7,473

7,596 7,790

6,000

40.0%
34.9%

34.4%

33.1%

32.4%

31.6%

31.1%

3,000

29.8%
28.4%

30.0%

29.1%
26.6%

27.4%

27.0%

27.1%

24.7%

0

20.0%

1Q

2Q

3Q

FY2020

4Q 1Q

2Q

3Q

4Q 1Q

2Q

FY2021

3Q

4Q

FY2022

1Q 2 QFY2023
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Sales and Operating profit trends by segmentMillion yenJapan
558
143216

China

OperatingprofitNorth America
9,966

235
Sales to externalcustomers

95

80

80

76

9,624

32

9,053
2Q 2021

2Q 2022

2Q 2023

584

1,677

1,737

2Q 2021

2Q 2022

1,522Southeast/South Asia

2Q 2023

149
63

2,205

2Q 2021432

436

2Q 2021

2Q 2022

2Q 2023

412,726

2Q 2022

3,313

2Q 2023

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13

Consolidated Balance sheet
FY23 first half

Increase(decrease)

FY23 first half

Increase(decrease)

Cash and deposits

3,756(500)Trade payables

4,467(677)Trade receivables

7,453

(143)

Interest-bearing
liabilities

2,983

130

Inventories

6,378

72

Other current liabilities

1,629(445)

566

(87)

Other non-current
liabilities

748

42

Total current assets

18,153(657)

Total liabilities

9,827

(950)

Property, plant andequipment

9,114

514

Capital stock and capitalsurplus4,094

0Intangible assets

744

163

Retained earnings

14,145385

Investments and otherassets

4,166

145

Treasury shares

(561)

6

Total non-current
assets

14,024822

Accumulatedcomprehensive income

1,739

494

Non-controlling interests

2,963

257

26

Total net assets

22,381

1,141

191

Total liabilities andcapital

32,208

191(Million yen)

Other

Deferred assets

Total assets

3232,208

Note) Increase (decrease): comparison with FY2023 first half
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14

Consolidated Cash flow
• Profit before tax: 933 • Increase in trade receivables: (298)• Depreciation:
556 • Increase in inventories:(418)• Increase in trade payables:
389

Million yen＋1,004• Increase/decreasein borrowings: 114• Dividends paid: (185)(1,305)(115)
 Property, plant andequipment:(1,062)
 Intangible assets: (213)4,186

Balance at
beginning ofperiod(84)Operating CF

Investing CFFinancing CF

3,686

Translationdifference

Balance at endof 2Q 2023
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FY2023 Earnings Forecast➢ Assumptions for full-year forecast
Crude oil price: 90 dollars/b Exchange rate: 130 dollars/yen(Million yen)

23/2Q

Full-year forecast

Progress rate

Net sales

15,38634,50044.6%

Operating profit

528

1,400

37.7%

Ordinary profit

933

1,600

58.3%

Profit

569

700

81.3%

➢ Dividend per share
20 yen for interim, 25 yen estimated for year-end (includingcommemorative dividend of 5 yen)
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16

Realization ofa Sustainable Society

17
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MORESCO Green SX certified products
Certifying products that may significantly contribute to the initiatives for our seven issuesof materiality based on evaluation of the entire product cycle from procurement of raw
materials to disposal

Contribution categories
CO2 emission control

Health and safety

Improvement of working
environments

Energy savingEnvironmental
conservation

Contribution toindustrial development

18
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Target of MORESCO Green SX products sales ratio

Toward achieving the FY2030 target,
working on improvement of existingproducts and development of new products

50%
40%

29%

FY2022 result

FY2026 target

FY2030 target

19
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R&D system for solving social issues•Development system across Divisions, based on collaborations within thecompany and with industry, government, and academia•

Launch of MOLGAD, a company-wide project
Application of VOC removal
technology to high value-addedmaterials

Division AO

Development of organic
photovoltaic materials

Division B

Division C

Overseassubsidiaries
Partnercompanies anduniversities

R&Dmeetings• Solving basicissues• Solvingcommon issues

LContinuous development in thefield of life sciences
GA

In-house production of polymers
from non-petroleum-derived rawmaterials

D

Application of DX technology

Creation of new technologies
and new basic technologies

M…
20
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Production of petrochemical materials from biomass➢ Launch a consortium and aim to produce 10 tons of formic acidper year by 2026
Reduction of methane fromlivestock manure by biogas
plantsDomestic production of usefulchemicals (formic acid) using
methane oxidation technology

Methanegas
Methane gas

Methanefermentation

Chlorine
dioxide air + light

Formic acid

MethanolNormal temperatureand pressure

Livestockmanure

Dairy farmers

ImportBiogas plant

Local production andconsumption of formic acid fromlivestock manure (feed additive)
Biomethanol

Formic acid

Decarbonization of supply
chain through domestic
production of formic acid

Chemical plant

Bio formic acidUse of biofuel
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Sealant for perovskite solar cells➢ Participating in a consortium launched by Prof. Miyasaka, Toin University ofYokohama➢ Aim to develop a prototype by spring 2024 and start commercial production within thenext three years

Consortium
Peccell Technologies, Inc.
(Representative: Prof. Miyasaka)
MORESCO Corporation
MACNICA, Inc.
REIKO Co., Ltd.
[Special lecture] Prof. Miyasaka visited MORESCO andgave a lecture.
(October 12, 2023)
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22

Accelerating
Global Expansion

23
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Enhancement of the structure for global expansion➢ Assigning an executive officer in charge for each area to promptly respond tocustomer needs➢ Enhancing R&D function of each area to accelerate market launch of new products

China• Early stabilization of new plants• Strengthening development systems(establishing new R&D center)• Driver for shift to new energy vehicles
Head Office

North America

Southeast/South Asia

• Considering partnerships with othercompanies in the same industry• Enhancing sales to American
customers• Considering establishing a subsidiaryand expanding business in Mexico• Expanding business and establishingsystems in Thailand• Expanding hot melt adhesive businessin ASEAN

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China - Reorganization of Functional Fluids business➢ Improving production capacity and efficiency in functional fluids business
文言をもらうand streamlining management operations➢ Strengthening development systems (establishing new R&D center)

After reorganization

Before reorganization

MORESCO Corporation

MORESCO Corporation
Hot Melt Adhesive business

TIANJIN MORESCO TECHNOLOGYCO., LTD.

Functional Fluids business

Functional Fluids business

MORESCO HANANO DIECASTING COATING (SHANGHAI)
CO., LTD.

WUXI MORESCO TRADINGCO., LTD.

Wuxi MoreTex
Technology Co., Ltd.

Production

Production
centralization

SalesDevelopment

Production* 50% ownershipManagement

Hot Melt Adhesive business

TIANJIN MORESCO TECHNOLOGYCO., LTD.

MORESCO (ZHEJIANG)
FUNCTION MATERIAL CO., LTD.

New
R&D

MORESCO China R&D Center

MORESCO TRADING (ZHEJIANG)
CO., LTD.

Sales

25
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North America - Reinforcing business through acquisition ofCross Technologies Group, Inc.
Expansion of Functional Fluids business
Market share of die casting lubricants➢ Enhancing stable supply by securing
production sites➢ Acquiring sales channels for American parts
manufacturers and expanding sales➢ Promoting new product development throughin-house production of raw materials

2022
3%

2030
15%

Source: Based on in-house survey

MORESCO USA Inc.

Cross Technologies Group, Inc.
26
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Head Office and R&D Center

Kobe City

Kobe Airport➢ Performance outlook and other information related to future forecasts and strategies contained in this material isbased on the Company’s decisions at the time of preparation of this material and is subject to change in the future
without prior notice.
➢ The Company will not be held responsible for any damage caused by making investment decisions based solely on
the performance outlook and target figures provided in this material.
➢ Please note, copying or distributing this material without permission is prohibited.

October 16, 2023

https://www.moresco.co.jp/
27
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